Question

Winner’s curse ~ In auction bidding, the “winner’s curse” is the phenomenon of the winning bid price being above the expected value of the item being auctioned. In a study, two groups of bidders were compared in a sealed-bid auction, super-experienced bidders and less-experienced bidders. In the super-experienced group, 28 of 189 winning bids were above the item’s expected value. In the less-experienced group, 33 of 149 winning bids were above the item’s expected value.

We want to test to determine if the proportion of winning bids that were above the item’s expected value for the super-experienced bidders is less than that in the less-experienced bidders.

Notation: 1=super-experienced bidders and 2=less-experienced bidders.
To use a normal distribution in this scenario, which of the following conditions must be satisfied?
Assume that the independence conditions are met.

Question 18 options:

	Both n1×p and n1×(1−pˆ) must be at least 10 where pˆ is the pooled estimate for the common population proportion.
	There must be at least 10 observed successes and 10 observed failures in the sample from Population 1.
	Both n2×pˆ and n2×(1−pˆ) must be at least 10 where p is the pooled estimate for the common population proportion.
	There must be at least 10 observed successes and 10 observed failures in the sample from Population 2.

Answer 1

The true statements are:

There must be at least 10 observed successes and 10 observed failures in the sample from Population 1.

There must be at least 10 observed successes and 10 observed failures in the sample from Population 2.

Options 2 and 4 are correct.